Cheese Potato Soup

I got this recipe from a friend at church. It's really good. I have a few more potato soup recipes that are really yummy and less fattening that I'll have to post on here sometime....

1 tbs. dried onion, or can use fresh onion
¼ cup butter
5 cups cubed peeled potatoes (I keep mine in water till I'm ready to use them so that they don't turn color)
3 cups water
2 cups frozen peas & carrots
3 cups milk, divided
4 tsp chicken bouillon granules
½ tsp. salt
½ tsp. pepper
¼ cup flour
4 cups shredded cheddar cheese
½ pound sliced bacon, cooked and crumbled

In large kettle, melt butter and add onion, sauteing if fresh. Add potatoes and water. Bring to a boil. Reduce heat; cover and simmer for 15 minutes. About half way through simmer, add peas and carrots to boil for remaining time. Stir in 2 cups milk, bouillon, salt and pepper. Bring to a boil; cook and stir for 2 minutes or until thickened. Reduce heat. Toss cheese with flour till cheese is well coated. This prevents your cheese from clumping once it's added to the soup. Add cheese and bacon; stir until cheese is melted. Makes 10-12 servings (about 2 ½ quarts).

Thanks Pam!
Substitutions:
Use turkey bacon instead of real bacon
Use ham instead of bacon
Omit the bacon altogether
Cut the cheese down to 2 cups
Use low fat milk instead of whole milk
Use low sodium chicken broth instead of bullion
Omit extra salt if using bacon